Cuts beginning to trickle through to mortgage-holders

Consumer advice with Grainne McGuinness

THE Central Bank had some good news for homeowners and house-hunters recently, reporting that average mortgage rates are falling. Those who have been struggling with repayments will feel change is long overdue, but at least things are moving in the right direction.

If you are in the market, you are probably already aware of changes but existing homeowners should also sit up and take notice of a possible opportunity to save money.

“Mortgage holders in Ireland have been paying more than their European counterparts for some time, but cuts are finally starting to trickle through,” says Mark Whelan of Irish comparison site Bonkers.ie. “KBC, Permanent TSB and Ulster Bank all cut a number of rates in the last few weeks, and both first-time buyers and existing mortgage holders should take notice.”

The rate decreases may seem small but even a fraction of a percent can make a big difference over the lifetime of a mortgage: “KBC, for example, cut its three-year fixed rates for borrowers with an LTV of 80%-90% from 3.65% to 3.30%. A cut of 0.35% may not sound like much in isolation, but it adds up to a saving of well over €500 a year for someone with a €270,000 mortgage. That type of saving can make all the difference to a first-time buyer as property prices continue to skyrocket.”

Mr Whelan says KBC’s new fixed rates are among the most competitive in the market, “especially when you consider that current account holders can get an additional 0.20% off their rates”. He also points out a growing trend towards fixed, rather than variable rates, with the Central Bank report showing that 52% of first-time buyers opted for fixed rates in the second half of 2016.

“Interestingly, all recent cuts have been to fixed rates. In Ireland’s notoriously volatile housing market, it looks like more and more borrowers are favouring the certainty that comes with fixing a rate for a few years, at least.”

This is something banks are also embracing. In October, then-Bank of Ireland CEO Richie Boucher said the bank had learnt the lessons of the past and was keen to promote fixed rates as a long-term option.

“If we can use our product range and our shareholders’ investment to attract people to move to fixed rates, then ideally we would like customers to move from one fixed rate to the next. Our desire is to have a habit of customers fixing their mortgages.”

For similar loan-to-value, Bank of Ireland is offering a three-year fixed rate of 3.45% and AIB and EBS are offering 3.65%. Permanent TSB is offering 3.60% and Ulster Bank 3.20% to customers who have a current account with the bank.

Homeowners crippled by rising variable rates during the recession may agree with Mr Boucher but it is worth remembering that this may not suit everyone. Central Bank figures show people buying a second or subsequent home were less likely to choose fixed rates, and buy-to-let purchasers overwhelmingly went for variable rates.

Mr Whelan explains: “Customers should be aware that fixed rate mortgages often come with restrictions. If a customer wants to switch mortgages, for example, they will likely be hit with large penalty fees if they are committed to a fixed rate.

“So, it’s vitally important to consider the affordability of a rate over the medium and long-term before signing up.”

Banks are also offering sweeteners to tempt customers. “Ulster Bank, for example, recently revamped its mortgage loyalty programme, meaning that existing borrowers can now switch to a three-year fixed rate of 2.90%, if they have an LTV of 60%.”

Cash-back offers can be attractive in particular to first-time buyers, but in the long-term, the rate is the single most important factor to consider.

“All banks are now offering large cash-back sums to new customers and while these can look very appealing in the short term, they often come with a higher repayment rate which can obliterate the advantage of the short-term cash in the space of just a few years.”

DEAL OF THE WEEK

If you have been with your existing energy provider for more than a couple of years without shopping around, you can almost certainly save money by changing.

To encourage consumers to switch to them, Energia has announced new cashback offers on its Dual Fuel and Electricity Only products.

Energia’s Dual Fuel bundle already offers households discounts of up to 27% on electricity and 26% on gas.

Customers switching to Energia for both fuels by contacting them directly will also receive €50 cashback. The company suggest households can save an average €531 per year, including the cashback and discounts for paying by direct debit.

There is also a version of the offer for customers who are only interested in switching for electricity. They will get an extra €30 cashback by switching with Energia directly.

You can find out more and avail of Energia’s new offer by visiting www.energia.ie or calling 1850 300 700.


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